Do you really think you are Diversified?

Do you think you are an investor? You may be surprised to find out that you are not, and maybe many of you are. My point is most people have a retirement account like a 401k,TSP,Roth IRA and maybe a brokerage account to invest in stocks or you buy some mutual funds. Most people would say you are divesified, I say you are not and I will explain why I think so.


Your stock broker or online broker or bank are always talking about diversification, right. Do you know what true diversification is? No worries if you do not know, because most of your brokers and firms don’t either. If they do know, they will not tell you. Why, because if they tell you what true diversification is you probably wouldn’t turn all your money over to them.

First of all you have to understand there are approximately 4 different asset classes. A business be it online, brick & mortar or franchise. Real estate as in residential, commercial or maybe raw land. Paper is also an asset class, examples: stocks, ETF, mutual fund, your retirement account etc. Finally you have commodities like gold, silver, oil, corn, etc. So, when your broker is telling you to diversify and that he has spread your risk by setting up a well diversified portfolio for you, he has only spread your money over one asset class (paper) and that is not true diversification.

I think, that is why the true entrepreneurs like Jim Rogers, Bill Gates and Henry Ford believe in focusing not diversifying. If you are investing and do not understand diversification in relation to the asset classes, that my friend is a recipe for disaster. If you’ve made mistakes, good, everyone has, but the minute you try to blame or say, well it’s not my fault my broker told me this, you will have learned nothing from that priceless gem, called a mistake.

Also an asset class doesn’t necessarily mean it is an asset, it can be an asset or it could be a liability, but that is for another discussion.

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2 Comments

  1. I am also a great fan of this subject and I love seeing some new posts in this niche! Thank you 😉

    • Appreciate your comment. Knowledge will make the years ahead the best of times.


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